1. Am I overthinking this and the use of a rocket stove should be the primary heat and built into the design of the house rather then bothering with underfloor heating?(skip the shed and put the money on the main build)
A rocket needs to be where you're spending your time, you won't do 4 hours a day in your shed.
Heating water for your bath, that's a good idea, which can be done. With extreme caution. Heating water to drink, i'm dubious. Because you need the water to boil for 20 minutes, to be perfectly drinkable. I think UV treatement is far more efficient. Or boiling directly in a pan.